Monday, October 6, 2014
Colex: Collecting is easy, selling will be hard
Over three separate transaction, I picked up a total of 80 lots of Colex. I did this after freeing up some cash towards the end of the quarter with the tidying up of the portfolio. The main reason for me collecting shares of collect was that it had been on my watchlist since 2009 and it was one of the shares that had yet risen much since then, I thought. As per Bloomberg, Colex's share price has risen from a bottom of SGD 0.08 three years ago to its current price of SGD 0.29. To a large part, due to the lack of trading volume for this share, I believe I contributed to most of the price increases the start of October.
The business model for Colex is straight forward - provide waste management for the West side of Singapore mainly through fixed long term contracts. As long as Singapore's population grows, particularly in the West side, earnings will grow in tandem, assuming cost remains the same. The main reason for cost escalation will be manpower costs although fixed capital for the trucks will weigh down future earnings.
The main problem owning this share is unless, the main share holder, Bonvest Holdings, disposes more shares to the public, I will most likely be unable to sell my shares in one clean transaction, meaning transaction costs will be higher than normal. Bonvest Holdings, owns about 78% of Colex's shareholdings and per Colex's 2013 annual report. Shareholding is so concentrated that you just need 170 lots in Colex to appear as the top 20 shareholders. Interestingly, shares of Bonvest have also risen steadily during the same period as Colex.
My exit strategy will depend mainly Bonvest taking Colex private as it will require only one transaction, albeit a protracted one. Alternatively, a bonus share issue will improve liquidity in the market and be the spring board for the next stage of share price growth. I think this will only happen if Colex shares rise to more than SGD 0.50. The current shareholding structure means it is unlikely that a rights issue will occur, as that would mean Bonvest coughing up for most of the cash.
I am left with another SGD 12,000 in free cash to move around. More important decisions will be in store.